Angel investors in Malaysia generally are still unfamiliar with the technology market, and this is holding back the growth of startups in this sector, according to the country's startup investment agency, Cradle Fund.

Besides better investor education, tax benefits and policies will also be conducive for crowdfunding and can help nurture the financing ecosystem, said Johnathan Lee, vice president of commercialization and ventures at Cradle Fund, which operates under Malaysia's Ministry of Finance. In crowdfunding, a group of people gather to provide funds to support an idea or project.

In an interview Thursday, Lee told ZDNet Asia that many investors were more comfortable with other "low-hanging fruit" such as real estate, public-listed equity and financial instruments. "Many of them are skewed toward brick-and-mortar companies because they are more familiar with that," he said.

Who is Cradle Fund?

The agency was set up in 2003 under Malaysia's Ministry of Finance, and is a not-for-profit organization that provides early stage funding with the Cradle Investment Programme (CIP), where RM150 million (US$49 million) has been allocated.

So far under its CIP Catalyst pre-seed fund, it has helped over 460 entrepreneurs, with 200 of them completing repayment of their loan.

Lee is also an advisor with Virtuous Investment Circle (VIC), which aims to promote a vibrant ecosystem for angel investing in Malaysia.

Besides encouraging successful entrepreneurs who have sold their companies to return to the angel investor community, he said VIC is also urging angel investors from other sectors to venture into the tech space. He pointed out that only 6 out of its 20 members currently were involved in tech investments.

Malaysia vs Silicon ValleyWhile startup ideas were not necessarily better in Silicon Valley, than in Malaysia, Lee noted that the U.S. financing ecosystem was more mature. He pointed out that this attracted many startups, allowing them to flourish in Silicon Valley.

He said it was important for Malaysia to boost investment interest in the local tech space, in order to grow the wider economy holistically.

"We are moving toward a globalized market and if we don't nurture the ecosystem, we will be left behind," he cautioned, adding that one possible consequence of this would be a brain drain.

One way to improve access to startup funds would be to promote crowdfunding, Lee suggested. "Current regulations in Malaysia do not allow crowdfunding in return for equity. If this can be allowed, it may be able to help startups and grow interest in angel investing," he said.

"Current regulations in Malaysia do not allow crowdfunding in return for equity. If this can be allowed, it may be able to help startups and grow interest in angel investing."

Crowdfunding sites such as Kickstarter, IndieGogo and Quirky have taken off in Western markets, and the concept is gaining popularity in the region, he pointed out. One version, ToGather.Asia, based in Singapore, was launched in March.

"These sites can help complement the early stages of investments and have worked very well elsewhere, but it needs the right regulations," Lee said.

He added that another way to promote the ecosystem is to introduce policies that allow for more tax exemptions for angel investors.

He is looking to use the conference, coming up in May, as a platform to educate investors and showcase some startups by "seeding" their products as part of the conference.

"For example, we are using technology from one of the startups for the online registration process," he explained. "The Wi-Fi connection at the conference and analytics during the Q&A will also be technology from some of the startups looking for further investment."